The court-appointed bankruptcy trustee overseeing the marshaling of assets for victims of TelexFree's alleged fraudulent scheme has filed a status report with the overseeing Massachusetts Bankruptcy Court detailing his investigation to date, including that:
- TelexFree and its affiliated company in Brazil, Ympactus Comercial Ltda., raised as much as $1.8 billion from over one million participants located throughout the world;
- Despite the Bankruptcy Court granting a motion to vacate a claim bar date, at least 25,000 claimants have filed proofs of claim with the claims agent, as well as approximately 10,000 victim notification forms with the Federal Bureau of Investigation and the Commonwealth of Massachusetts;
- TelexFree kept poor and incomplete internal records, and a database ultimately reconstructed contains "billions of records and perhaps over a trillion individual data points";
- "The primary business of [TelexFree]...was the recruitment of new Participants to generate revenues for [TelexFree] and existing Participants";
- "By the end of 2013 and early 2014, [TelexFree] was generating cash of as much as $50,000,000 per month...";
- "Although the Debtors were apprised in mid-2013 by counsel that the business plan was a pyramid scheme, they continued to operate using that plan until March 2014. At that time, the Debtors introduced a new business plan, even though the Debtors were apparently advised that the new plan did not rectify the problem. The new plan was unanimously rejected by the Participants, which appears to have precipitated a ‘run on the bank’ inasmuch as $58,000,000 or more was paid out to certain Participants in the several weeks leading up to the filing of the petitions."
- The Trustee has recovered over $17 million since his appointment;
- The Trustee is evaluating potential avoidance claims and causes of actions;
- The Trustee intends to seek court approval of a "modified proof of claim form uniquely tailored to the circumstances. The Trustee also plans to seek court approval for a claims submission process, as well as the manner of submission of claims. The Trustee expects that the claims process will need to be, "and should be," administered electronically.
- The Trustee intends to seek approval of the Court for a modified proof of claim form uniquely tailored to the circumstances of these cases. The Trustee and his advisors are currently working on the development of a prototype claim form for the Court’s consideration."
A copy of the Status Report is below. Updates to this post will follow.